Wash Trading

Wash trading is a form of market manipulation in which an entity simultaneously buys and sells the same financial instrument, creating a false impression of market activity without incurring real market risk or changing its own market position. The practice is outlawed in most jurisdictions; the United States established its prohibition through the Commodity Exchange Act of 1936, and modern regulated exchanges such as ICE have built self-trade prevention systems to block it automatically, though unregulated markets, particularly cryptocurrency exchanges, continue to see the practice widely, with research finding that approximately 70 percent of NFT transaction volume involves wash trading and cumulative wash-traded volume reaching roughly 26.88 billion dollars by January 2023. Participants use the tactic to inflate apparent trading volume, artificially raise an asset's price through a fabricated transaction history, generate undisclosed commissions, or create a false impression of a platform's popularity, commonly through self-trading via paired bid and ask orders, transfers between accounts the same person controls, automated trading algorithms, or falsified trading records.